Euro-zone lending to private sector plunges

ToddBuell

Lending to the private sector in the euro zone plunged in November at the sharpest annual rate since records began over 20 years ago, data from the European Central Bank showed Friday, suggesting that the region will struggle to get its anticipated economic recovery in full gear.

Private sector lending in the euro zone declined by 2.3% on the year, after a 2.2% decline in October, the ECB said. The deepening decline increases pressure on the central bank to embark on further measures to stimulate lending, analysts said.

"Banks likely believe the economic situation and outlook in many Eurozone countries still provides an uncertain and risky backdrop in which to lend despite the Eurozone eking out modest growth since the second quarter," wrote Howard Archer, chief European and U.K. economist at IHS Global Insight in London.

On the month, lending to households declined by 3 billion euros ($4.1 billion) reversing the EUR3 billion increase in October, while lending to firms fell by EUR13 billion, following a EUR15 billion drop in the previous month. Loans to firms were down by 3.9% on the year.

Mr. Archer added that though he expects the ECB to stand pat at its next meeting on Jan. 9, he thinks it will take more action early in 2014, "most likely" as another longer-term loan. It is "highly possible" that a future loan would be "tailored specifically toward bank lending," he said.

Timo del Carpio, an economist at Royal Bank of Canada also said after the release that he expects the ECB to keep rates on hold next week, "but our view remains that the incoming data for the euro area will ultimately prompt further 'nonstandard' support, possibly in the first quarter of the year."

The ECB's broad gauge of money supply, or M3, grew by only 1.5% in November in annual terms, above the 1.4% rise in October, while the three-month average grew by 1.7%, after 1.9% in the previous month. The monetary growth data remain well below the ECB's "reference value" of 4.5%, which it considers consistent with its price stability mandate.

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